Influencers need to “clearly and conspicuously” disclose business relationships.

Many beauty consumers trust recommendations from influencers on what to buy.

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According to a CNBC study in January, brands spent 65 percent more on advertising on Facebook, Twitter, LinkedIn, Instagram and Pinterest in 2016 than in 2015, with expenditures on Instagram showing the highest level of growth. Many brands and fashion designers find stylized slice-of-life selfies and related posts by influencers to be useful methods to reach their target market, and, not surprisingly, have increased digital ad spends in 2017 to drive sales and engage with customers.

Given the real-time nature of mobile marketing, it is important for companies — whether an established house or fashion start-up — to make sure outside influencers include proper disclosures in social media postings and abide by company policies.

Monica B. Richman

Far more than just snapping a selfie while wearing an outfit, influencers or “online celebrities” garner throngs of followers by portraying a certain artful sincerity in sharing their lives to the world (while seamlessly endorsing fashion and products that fit their public image). Brands quickly have learned that such postings draw mobile traffic and drive fans to engage with the sponsored posts. Yet, when a brand retains social media influencers, bloggers, vloggers or other talent to drive awareness and sales through social media, the brand may be inviting unnecessary legal complication unless it has a robust influencer policy.

To avoid negative publicity and the cost of defending a regulatory enforcement action, companies should require all endorsers to sign an influencer agreement that outlines when an influencer must disclose his or her connection to the company and how it must be done on the various platforms, as well as giving the company the right to terminate endorsers who fail to abide by the policy.

The Federal Trade Commission’s Endorsement Guidelines state that if there is a “material connection” between an endorser and the marketer of a product, then such a connection should be clearly and conspicuously disclosed, unless the connection is already clear from the context of the medium containing the product endorsement. A “material connection” is anything that might affect the weight or credibility that consumers give the endorsement, such as a monetary payment, business or family relationship, or the provision of free products to the endorser.

Cash payment is not a requirement of disclosure, and “payment” or a “gift” in clothes or other product does not allow the company and influencer to circumvent the disclosure rules. Disclosure is most crucial where content is not obviously advertising to the consumer, such as a Facebook post of the influencer wearing the company’s clothing. And a company cannot escape the requirements by merely delegating a campaign to its ad agency.

In short, the FTC requires proper disclosures so that endorsements on social media by a person with a “material connection” to the company are not ads in disguise. And the FTC is not shy about enforcement against fashion companies and retailers. For example, last year, a major fashion retailer settled FTC charges that influencers promoting a collection did not disclose they were compensated in exchange for their endorsements and the retailer was required, among other things, to establish a robust compliance program and maintain certain records related to all outside endorsements for the next 20 years in the event of an FTC audit. Moreover, the FTC made a splash earlier this year when it sent more than 90 letters to brands, celebrities and influencers pointing out apparent omissions in their disclosures on Instagram posts and reminding them to “clearly and conspicuously” disclose relationships in the future.

What does “clearly and conspicuously” mean in the context of social media marketing? While each platform has its own quirks, influencer disclosures should be:

Unambiguous to the average reader and located near the corresponding social media post. A hyperlink to a separate page of disclosures is insufficient;

Placed “above the fold” where users will see it on a mobile screen without clicking ahead. For example, in Instagram, before the More button; in YouTube, before the Show More button;

In a readable font and color that makes the disclosure noticeable against the background; and

Not buried in a jumbled string of hashtags.

Disclosure itself is straightforward. There are no magic words, but custom has shown that #Ad, #PaidAd, #Sponsored, #Promotion, or “This video was sponsored by…” would likely suffice, but #sp, #partner, “Thanks [brand]” or #[brand campaign] would not. Disclosures spoken by the endorser within a video review are best made at the beginning of the video.

Francesca Montalvo Witzburg

To manage social media campaigns, companies should require influencers to sign an agreement that outlines standards of conduct and required disclosures. While the FTC has taken action against companies for inadequate disclosures in the social space, it has also closed investigations when a company has an established endorsement policy and any omissions were isolated incidents.

Under the influencer agreement, the company should retain the right to terminate the relationship or withhold payment if the influencer fails to include the required disclosures. Moreover, the agreement should outline the process for obtaining clearance to use company logos and trademarks (and a similar permission process to use marks of partners or third-party entities).

As for the use of images, which can expose a company to copyright liability, the agreement should require the influencer to obtain clearance before using any images featuring living individuals or third-party trademarks or copyrights or photos taken by third parties (of course, the endorser is on the firmest footing using photos or selfies taken by his or herself depicting the product). Lastly, the company should have a social media policy in place that establishes internal procedures to monitor postings and enforce compliance.

A final caveat before engaging influencers: All entities involved in a marketing campaign should ensure compliance with the FTC guidelines. For example, one lapse in compliance led to an FTC enforcement action when a big tech company hired an outside ad agency, which in turn engaged an online entertainment network that hired influencers who did not adequately disclose their status as endorsers. The lesson: If your company delegates social media campaigns to an outside agency, it should ensure all entities require influencers to make the required disclosures under the law.

Monica B. Richman is a partner in the New York office at Dentons. She has created a leading practice as intellectual property counsel to clients who include many of the world’s biggest names in entertainment and fashion. Her specialties include licensing, commercial contracts, and intellectual property development, protection and management. Francesca Montalvo Witzburg is an associate with Dentons specializing in the fashion and entertainment industries.

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